Victoria won’t have fossil fuels in backup energy plan

The Prime Minister has backed Victoria’s position to block fossil fuel-fired power stations from receiving new payments to generators that can deliver electricity on demand.

Victoria does not want coal-fired generators closing too quickly, Daniel Andrews says, but the Premier is standing by his plan to cut them out of a new scheme to deliver reliable power.

And Anthony Albanese has supported Victoria’s position, even after the Energy Security Board recommended a technology-neutral capacity mechanism that will pay generators, which can provide power on demand.

The state government is refusing to include coal and gas in a new scheme to prevent blackouts, despite the Energy Security Board concluding that is necessary when “the stakes have never been higher”.

The Andrews government has vowed to block fossil fuel-fired power stations from receiving new payments to generators that can deliver electricity on demand.

Visiting Melbourne for the first time since last month’s federal election, the Prime Minister appeared alongside Mr Andrews on Monday and said the “insurance scheme” for the electricity grid would be “mode-neutral”.

Mr Albanese said the board’s proposal allowed the states to decide which forms of generation to support “depending on their particular circumstances”.

Mr Andrews said that recognised the fact that every state had a different energy mix.

“Our position has consistently been that the priority should be given to ... renewable energy,” the Premier said.

“I’m the first to acknowledge and indeed our government has acted in recognition of the fact that coal, and to a lesser extent gas, are at the moment … still part of our mix.”

Victoria's Yallourn coal-fired power station. Picture: Jason Edwards

Mr Andrews said energy companies constantly told him of their troubles paying for maintenance on ageing generators.

“We can’t have them to run to the exits though and leave us without the baseload we need,” he said.

But he added: “The time has come to stop talking about transition and to get on and make it.”

New federal Energy Minister Chris Bowen is also suggesting coal and gas could be left out of the scheme.

Mr Bowen says the east coast is “through the worst” of this month’s energy crisis that left states, including Victoria, perilously close to enforced power outages and blackouts.

Speaking in Sydney, Mr Bowen defended the right for the states to decide whether fossil fuel-fired generators would be included in the capacity mechanism.

He said he believed it needed to “emphasise new technology”, especially pumped hydro, and be consistent with the nation’s emissions reduction goals.

Asked whether Victoria’s opposition to backing coal and gas risked fracturing the scheme, Mr Bowen said: “It’s appropriate that states be able to implement this in a way that is suitable to their needs, but it will be within that national framework.”

After this month’s energy crisis prompted state and federal ministers to fast-track the so-called capacity mechanism, the independent board designing the scheme has maintained it should be technology-neutral.

In a report to be released on Monday, the board said it was “hard to be confident that we will ‘stick the landing’ of the energy market transition”, with the coal-fired generators that provide more than half of our power expected to be closed by 2043.

Victorian Energy minister Lily D'Ambrosio. Picture:Andrew Henshaw

While the board said the mechanism would not extend the life of coal stations, it backed including them to “reduce the risk of disorderly transition” and bring online new on-demand power.

Only one gigawatt of dispatchable generation has been built in the past decade, but as much as 14 gigawatts of coal-fired power may be gone by 2030 – a third of existing dispatchable capacity.

Board chair Anna Collyer said the mechanism, used around the world, would aid the “enormously complex task” of managing a once-in-a-century transformation.

She said it would ensure the grid had capacity “when and where we need it so we can continue to deliver reliable and affordable power as our system decarbonises”.

The board suggested states could choose to exclude particular technologies.

Victorian Energy Minister Lily D’Ambrosio said: “We have always been clear that a capacity market operating in Victoria would make payments to zero emissions technologies and not fossil fuels.”

The board also warned of the future impact of “renewables droughts” in Victoria, with low wind and solar output coinciding in winter.

It forecast that as coal-fired stations retired, the electricity grid would be under more stress in winter than summer, in line with the chaos seen this month amid widespread coal outages.

The board will finalise the mechanism’s design by February and said it was “realistic” that it could be active by 2025, despite Mr Bowen recently vowing “we’re going to do it quicker than that”.

He welcomed the report, saying there was “still a ways to go” but it put “us back on track in reforming an energy market that has undergone rapid change”.